Treasury Risk Management Toolkit for Local Authorities

Effective treasury management is about the management of risk. Interest rate risk, liquidity risk and credit risk are all distinct, and require careful monitoring and management in a debt or investment portfolio. For local authorities, the priority is on managing risks more than maximising return.

Treasury risk management has been an important part of CIPFA’s Treasury Management Panel in recent years, but it is difficult to measure and manage objectively. The Risk Studies undertaken by the Treasury Management Network in 2010 and 2011 have helped to quantify local authority treasury risks. The Panel has now produced this Treasury Risk Management Toolkit to provide further practical help for local authorities to understand and manage the treasury risks in their debt and investment portfolios.

The techniques for managing standalone investment portfolios are well developed, but there is little guidance to help local authorities manage their debt portfolios effectively. The toolkit looks at an authority’s total debt and investment portfolios in the round, and provides a suite of reports and techniques for treasury practitioners to define the authority’s risk appetite, measure the risks it is taking relative to its risk appetite, and manage the portfolio accordingly.

In this developing field, the Toolkit is intended to be a major contribution, written by and for treasury practitioners, providing both a conceptual framework and a practical set of tools for managing treasury risk. As well as addressing the major types of risk, the Toolkit also examines key areas of risk which may be less understood, including a detailed analysis of LOBOs and how to approach them, the evaluation of debt restructuring operations, and the impact of the HRA self-financing reform.

This Toolkit is available in book and PDF formats.